The Equity Premium and Structural Breaks

Lubos Pastor and Robert Stambaugh

No 7778, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A long return history is useful in estimating the current equity premium even if the historical distribution has experienced structural breaks. The long series helps not only if the timing of breaks is uncertain but also if one believes that large shifts in the premium are unlikely or that the premium is associated, in part, with volatility. Our framework incorporates these features along with a belief that prices are likely to move opposite to contemporaneous shifts in the premium. The estimated premium since 1834 fluctuates between four and six percent and exhibits its sharpest drop in the last decade.

JEL-codes: G10 G11 (search for similar items in EconPapers)
Date: 2000-07
New Economics Papers: this item is included in nep-fin
Note: AP
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Citations: View citations in EconPapers (9)

Published as Pastor, Lubos and Robert F. Stambaugh. "The Equity Premium And Structural Breaks," Journal of Finance, 2001, v56(4,Aug), 1207-1239.

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Journal Article: The Equity Premium and Structural Breaks (2001)
Working Paper: The Equity Premium and Structural Breaks (2000)
Working Paper: The Equity Premium and Structural Breaks
Working Paper: The Equity Premium and Structural Breaks
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